Answer the Following Questions Using the Information Below:
Violet Sales

question 21

Multiple Choice

Answer the following questions using the information below:
Violet Sales Corp, reports the year-end information from 2016 as follows:
$$\begin{array} { l r } \text { Sales (35,000 units) } & \$ 280,000 \\\text { Cost of goods sold } & 105,000 \\ \text { Gross margin } & 175,000 \\\text { Operating expenses } & 150,000 \\\text { Operating income } & \$ 25,000 \\\hline\end{array}$$ Violet is developing the 2016 budget. In 2016 the company would like to increase selling prices by 3.5%, and as a result expects a decrease in sales volume of 15%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
-Should Violet increase the selling price in 2016?

• A) Yes, because sales revenue increases for 2016.
• B) Yes, because gross margin increases for 2016.
• C) No, because sales volume decreases for 2016.
• D) No, because operating income decreases for 2016.

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